The Real Crime in the Bailout -- Naked CDS Deals (Cenk Uygur)

  March 27, 2009 (Huffington Post) -- The size of our national economy this year is roughly $15 trillion. The size of the Credit Default Swaps (CDS) market is $64 trillion. The whole world GDP is about $56 trillion. How could the CDS market be larger than the world GDP combined? That doesn't make any sense.

  The minute I read that many months ago, I realized that there was something unreal going on in the CDS market. By "unreal" I mean something that is given value even though it is not attached to real assets. And the more I researched, the more I realized that was true.

  CDS are basically supposed to be insurance on a group of assets. So, if you have a collection of mortgages, loans and other assets, and you would like to insure their value, you get a CDS. This makes sense since some of these underlying assets turned out to be quite risky.

  What doesn't make sense is for the insurance market to be many times larger than the value of all of the underlying assets combined. Well, it turns out there is a reason for that. It's called the "naked" CDS. These deals are not attached to any underlying asset. They are not collateralized. They are not attached to anything of real value. They are simply bets. As in wagers. As in gambling.